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Trade-Ideas: Molycorp (MCP) Is Today's "Barbarian At The Gate" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Molycorp (MCP) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Molycorp as such a stock due to the following factors:

  • MCP has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $26.0 million.
  • MCP has traded 13.3 million shares today.
  • MCP traded in a range 276.5% of the normal price range with a price range of $0.48.
  • MCP traded above its daily resistance level (quality: 69 days, meaning that the stock is crossing a resistance level set by the last 69 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in MCP with the Ticky from Trade-Ideas. See the FREE profile for MCP NOW at Trade-Ideas

More details on MCP:

Molycorp, Inc. produces and sells rare earth and rare metal materials in the United States and internationally. Currently there is 1 analyst that rates Molycorp a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Molycorp has been 7.0 million shares per day over the past 30 days. Molycorp has a market cap of $1.2 billion and is part of the basic materials sector and metals & mining industry. The stock has a beta of 3.12 and a short float of 46% with 12.32 days to cover. Shares are down 49% year-to-date as of the close of trading on Thursday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Molycorp as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally high debt management risk and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 270.2% when compared to the same quarter one year ago, falling from -$18.89 million to -$69.93 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, MOLYCORP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$15.97 million or 192.89% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The debt-to-equity ratio of 1.06 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, MCP's quick ratio is somewhat strong at 1.30, demonstrating the ability to handle short-term liquidity needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 58.06%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 127.77% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

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